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Viking Therapeutics (NASDAQ: VKTX) has been one of the hottest healthcare stocks to own this year, thanks to hype and excitement relating to its promising weight loss treatment, VK2735. The potential that investors see in the drug is a key reason the stock has ballooned to a market cap of nearly $6 billion despite the company generating no revenue and having no approved products yet.

But the stock's momentum does appear to be slowing down of late. In just the past three months, for instance, shares are down more than 30%. Is this a concern for investors, and could more of a drop in the share price be coming, or is this latest pullback just a great buying opportunity?

It's not only Viking's share price that has been falling; volume is down, too

One way to gauge interest in a stock is by looking at its trading volume. While there was a big jump in trading around March and April when the company released its quarterly results and provided updates about its clinical trials and the progress of VK2735, that surge in trading has proved to be short-lived.

VKTX 30-day average daily volume; data by YCharts.

Later this month, Viking is also due to release its latest earnings results, and along with that, there will likely be an update on the drug's progress. If there are any positive or encouraging developments, there could be another uptick in volume.

Investors could still be waiting a long time for approval of a treatment

When Viking provided an update to investors on VK2735 in April, it said that it was going to discuss the drug's next steps with the Food and Drug Administration (FDA). While the drug showed positive results in a phase 2 trial, helping people lose about 15% of their weight and proving that it was safe to use, a larger phase 3 study is still likely going to be coming in order to further validate its effectiveness.

Even for investors who are bullish on the drug's approval, that means it could still be at least a year before a trial is wrapped up. And after that, the FDA would still need to review the results.

Meanwhile, many top healthcare companies are developing weight loss drugs of their own to try to grab a piece of the lucrative anti-obesity market, which could grow to be worth $100 billion by 2030, according to estimates from Goldman Sachs. By the time VK2735 obtains approval (which is still by no means a guarantee), all that competition could make it difficult for the drug to stand out among many other weight loss options for consumers.

As VK2735 progresses, Viking is going to see its expenses increase and its cash burn intensify, and that could put the stock on even more of a decline as investors could become worried about its financials. In the trailing 12 months, it has burned through $55 million in cash and has incurred losses totaling $94 million.

Should you buy Viking stock?

Viking Therapeutics stock has a lot of potential should VK2735 be approved, but with its valuation already soaring more than 230% in the past 12 months, it's hard to envision significantly more upside at this stage. Obtaining approval for a drug would be great, but Viking would also need to commercialize the drug at a significant scale to be able to compete with other big weight loss companies such as Eli Lilly and Novo Nordisk, which have been investing billions.

The stock's momentum is waning, and for good reason: Its valuation simply isn't sustainable given that the company doesn't have any approved products to rely on for revenue. This is still a risky stock to own, and although Viking is intriguing and worth putting on a watch list, it isn't a stock I would go out and buy today.

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David Jagielski has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Goldman Sachs Group. The Motley Fool recommends Novo Nordisk. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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